Posted: 12/5/2012 4:02:23 AM EDT
| As a matter of general legal trivia, I tripped upon the fact that a manufacturer is exempt from paying an excise tax if they produce less than 50 per calendar year. This became effective on October 1st 2005. http://www.ttb.gov/applications/pdf/50_gun_exemption.pdf If you produce 50 or more, you are still responsible for the tax on the first 49. This tax liability is in place even for demonstration firearms. http://www.atf.gov/regulations-rulings/rulings/atf-rulings/atf-ruling-94-6.html |
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Another legal trivial item about how the "50" came up:
Under 26 U.S.C. s 4181 (http://www4.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00004181----000-.html), the manufacturer(s) of a firearm is required to pay a federal firearms and ammunition excise tax (FAET) of 10% or 11% on the first sale of the item. Recently, this has been an issue for gun smiths because ATF takes the position that custom work on a firearm is the same as manufacturing a new firearm for the purposes of the excise tax (see ATF FAET FAQ (http://www.ttb.gov/firearms/faqs.shtml)). As a result, in 2005 Congress passed a provision exempting manufacturers of less than 50 firearms from paying the tax (See 26 U.S.C. 4182) (http://www4.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00004182----000-.html). One effect of these regulations is that non-FFL individuals who build firearms on a stripped receiver (CMP M1 Garand Receivers, AR15 stripped lowers, stripped AK receivers, etc.) are "manufacturing" a firearm under the terms of the law since no FAET is paid on the items. This is perfectly legal as long as the items are for personal use. (see ATF FAET FAQ (http://www.ttb.gov/firearms/faqs.shtml)). One legal question that pops up though, is what happens if the person who built it for personal use later changes their mind and decides they want to sell the rifle? According to a few FFLs at AR15.com (http://www.ar15.com/forums/topic.html?b=3&f=118&t=347381&page=4�), ATF is taking the position that the FAET does need to be paid; but they do not accept tax payments from non-FFLs and they claim the less than 50 firearms exemption applies only to licensed manufacturers (FFLs). If this is true, then any rifle built on a stripped lower is in the same position as a rifle manufactured from an 80% lower. The lower receiver can never be legally transferred because you must pay the FAET to legally transfer it but ATF does not accept FAET from non-FFLs. Looking at the annotated U.S. code, I've found exactly one case on the definition of "Manufacturer" concerning the FAET. The case is International Armament Corp. v. United States, 598 F. Supp 1028 (D.C. Va. 1984). It is a district court case from Virginia and may not have much value as precedent. In the case, Interarms had contracted with a company (who assigned that contract to Ranger) to build Walther pistols under license. Ranger actually did all of the manufacturing and paid the excise taxes before reselling the pistols exclusively to Interarms for distribution to FFLs. The IRS tried to hit Interarms for the excise tax as well and got shot down by the court who ruled that Interarms was not required to pay the excise tax. Not much useful to this conversation except this part at 1030-1031: (i) The term “manufacturer” includes any person who produces a taxable article from scrap, salvage, or junk material, or from new or raw material, by processing, manipulating, or changing the form of an article or by combining or assembling two or more articles .... (ii) Under certain circumstances, as where a person manufactures or produces a taxable article for another person who furnishes materials under an agreement whereby the person who furnished the materials retains title thereto and to the finished article, the person for whom the taxable article is manufactured or produced, and not the person *1031 who actually manufactures or produces it, will be considered the manufacturer. Under Treas.Reg. § 48.0-2(a)(4)(ii) two tests emerge for designation of a “manufacturer,” namely, (1) “a person manufactures or produces a taxable article for another person who furnishes materials under an agreement ” and (2) “the person who furnished the materials retains title thereto and to the finished article.” (emphasis added). FN1. The excise tax on firearms is intended to apply to the first sale by the manufacturer. Under the “first sale” rule laid out by the United States Supreme Court in Indian Motocycle Co. v. United States, 283 U.S. 570, 574, 51 S.Ct. 601, 602, 75 L.Ed. 1277 (1931), “[the excise tax] is not laid on all sales, but only on first or initial sales-those by the manufacturer, producer or importer.” Also at 1033: cf. Rev.Rul. 84-116, 1984-31 I.R.B. 8 (In an analogous context, a gunsmith's customer was considered the manufacturer of a rifle because the customer supplied the parts used by the gunsmith in the fabrication of the rifle.) ============================= All of this concerns me because of two things: 1. It would potentially make millions of gun owners who sold firearms based on stripped receivers that they purchased through an FFL subject to criminal tax evasion charges. 2. The statute for the small manufacturer exemption (26 U.S.C. 4182) says absolutely nothing about limiting the exemption only to licensed manufacturers. As near as I can tell, ATF has never prosecuted any private non-FFL "manufacturer" for failing to pay the excise tax; but I am concerned if ATF is telling local FFLs that their interpretation is different than the law Congress passed on this subject. - B Roberts Shitpot stirred V OUT |
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Quoted:
One legal question that pops up though, is what happens if the person who built it for personal use later changes their mind and decides they want to sell the rifle? According to a few FFLs at AR15.com (http://www.ar15.com/forums/topic.html?b=3&f=118&t=347381&page=4�), ATF is taking the position that the FAET does need to be paid; but they do not accept tax payments from non-FFLs and they claim the less than 50 firearms exemption applies only to licensed manufacturers (FFLs). If this is true, then any rifle built on a stripped lower is in the same position as a rifle manufactured from an 80% lower. The lower receiver can never be legally transferred because you must pay the FAET to legally transfer it but ATF does not accept FAET from non-FFLs. The bottom line is that the exception found in 26 U.S.C. 4182 applies to any "Person" which includes individuals. There simply is no tax for under 50. That thread is full of fuck. Within that thread you will see that a few others have posted what I have posted here. Under 50 and there is no tax. A small number per year for your personal collection which you choose to later sell and you are not engaged in the business of manufacturing. Person. An individual, trust, estate, partnership, association, company, or corporation. When used in connection with penalties, seizures, and forfeitures, the term includes an officer or employee of a partnership, who as an officer, employee or member, is under a duty to perform the act in respect of which the violation occurs.
(c) Small manufacturers, etc.
(1) In general The tax imposed by section 4181 shall not apply to any pistol, revolver, or firearm described in such section if manufactured, produced, or imported by a person who manufactures, produces, and imports less than an aggregate of 50 of such articles during the calendar year. Quoted:
All of this concerns me because of two things: 1. It would potentially make millions of gun owners who sold firearms based on stripped receivers that they purchased through an FFL subject to criminal tax evasion charges. . How so? They are not subject to the tax for a few builds per year. Quoted:
This should be good news that the exception pertains to individuals also. The only time that an individual would be subject to the tax is if they "manufactured" and transferred 50 or more. The reality is that they would be in trouble if caught for being in the business of selling firearms far before 50 were reached. What are ATF agents telling local FFLs???2. The statute for the small manufacturer exemption (26 U.S.C. 4182) says absolutely nothing about limiting the exemption only to licensed manufacturers. As near as I can tell, ATF has never prosecuted any private non-FFL "manufacturer" for failing to pay the excise tax; but I am concerned if ATF is telling local FFLs that their interpretation is different than the law Congress passed on this subject. 
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Disregard, 26 USC 4182 now reads
(c) Small manufacturers, etc. (1) In general The tax imposed by section 4181 shall not apply to any pistol, revolver, or firearm described in such section if manufactured, produced, or imported by a person who manufactures, produces, and imports less than an aggregate of 50 of such articles during the calendar year. V OUT |
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Quoted:
As for definitions, how are you not the manufacturer as defined in 26 USC § 4181 - Imposition of tax? I am talking about Tax definitions, not BATFE definitions. Tax definitions state that you as a "Person" are not subject to the tax if you manufacture 49 or less per year. This is pretty clear. |
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Quoted:
I can't respond while you continue to edit...see above. It was not my quote, it was from BR who I listed above. I can't see anywhere in your post where you were quoting someone else. It was not clear to me. You may wish to add a quote box so that it is clear. Quoted:
I can't respond while you continue to edit...see above. I apologize for that but I am posting in between job tasks. |
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Quoted:
The number for non FFL's is 5, you have to own them longer than one year. If you manufacture more than 5 or sell sooner than one year you risk getting pinched for not having a 07 FFL. Can you cite anything to that effect? Although the 5 firearms has been thrown around as some general administrative guideline, the 1 year part seems especially non-factual. |
| If anyone wants a Wisconsin case study as to what happens when you draw the undesired attention of the BATFE, you have to look no further than the David Olofson case. They were after him for "manufacturing and dealing in firearms without a license" in addition to the hammer follow incident. If Excise tax did not come up in that case, I certainly do not believe that someone assembling a couple per year as part of their gun hobby has anything at all to be concerned with. If you really are making a business out of it, then you are inviting them into your life. |